Starbucks Corporation(SBUX), one of the world’s leading roasters and retailer of specialty coffee, is scheduled to report its third-quarter 2011 financial results on Thursday, July 28, 2011. The current Zacks Consensus Estimate for the quarter is pegged at 34 cents a share. The Zacks Consensus Estimate projects revenues for the quarter to be $2,850 million.
Second Quarter 2011 Recap
Starbucks, which faces stiff competition from McDonald's Corp. (MCD), registered robust results for the second quarter of fiscal 2011. Quarterly earnings of 34 cents a share was in line with the Zacks Consensus Estimate and increased 21.0% from $0.28 delivered in the prior-year quarter. Profits were primarily driven by strong holiday season sales.
Total sales for the first quarter jumped 10.0% to $2.78 billion in the quarter compared with $2.5 billion in the prior-year quarter, portraying same-store sales growth of 7%.
Management Guidance
The Company expects the fiscal 2012 earnings per diluted share to range from $1.46 to $1.48, reflecting a 15% to 20% growth over the fiscal 2010 earnings per share. The guidance includes higher commodity costs, which are expected to influence the earnings by 22 cents per share. The current Zacks Consensus Estimate for fiscal 2011 is $1.50.
Third-Quarter 2011 Zacks Consensus
Earnings estimates for the third quarter of 2011, as provided by the analysts, range from a low of 32 cents to a high of 36 cents. Thus, the current Zacks Consensus Estimate for the quarter is pegged at 34 cents per share, reflecting a year-over-year increase of 17.2%.
Over the past 30 days, none of the analysts revised the earnings estimate and thus the current Zacks Consensus Estimate remained same at 34 cents.
Earnings History Outpaces Zacks
With respect to earnings surprises, Starbucks has topped the Zacks Consensus Estimate in all the preceding four quarters. Over the last four quarters, the earnings surprise ranged from 0.00% to 15.63%, with the average earnings surprise being 15.51%, suggesting that Starbucks has outperformed the Zacks Consensus Estimate.
Recommendation
Starbucks operates in a highly competitive market. Moreover, labor unions pose inherent risks for the company and the company’s high dependence on information technology also remains a concern.
Currently, we prefer to rate the stock as Neutral. Starbucks holds the Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.
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